1. Field of the Invention
The present invention relates, in general, to financial data analysis methods and systems, and, more particularly, to computer software, hardware, and computer-based methods for analyzing research data, including buy, sell, hold, and other recommendations for stocks, generated by security or stock analysts or computer generated to provide consumers of such research data techniques for aggregating the data to improve investing performance.
2. Relevant Background
There are hundreds of firms who have as their business to provide buy, hold, and sell recommendations on individual securities—“Opinionated Research”. There are also many firms that help the potential customers of such research recommendation determine which providers are the best—“Performance Measurement Firms”.
Securities or stock analysts or “research analysts” are one of the main resources for information on companies and the desirability of investing in the companies. Research analysts attempt to predict future events such as earnings well in advance of the time the earnings are announced and may use these predictions and other information such as long-term prospects to provide investment recommendations, sector rating, growth rate and price targets. The role of the security analyst is generally well-known and includes issuing earnings estimates for securities, other financial estimates concerning future economic events, recommendations on whether investors should buy, sell, or hold financial instruments, such as equity securities, and other predictions. Security analyst estimates provided in research reports may include, but are not limited to, quarterly and annual earnings estimates for companies whether or not they are traded on a public securities exchange.
While research reports provide large amounts of useful information, there are numerous challenges facing a consumer of the estimates and recommendations, such as a manager of a mutual fund or an individual investor. Analysts typically summarize their search reports with a brief recommendation on the action an investor should take regarding a particular investment or stock. The various research analysts, who may be individual analysts or firms, often will differ in their recommendation for a particular company and its stock. For example, one research analyst may provide a buy recommendation while another firm is providing a sell recommendation. Further, every firm may use its own rating system to provide its recommendations with one firm using a five-point scale of buy, outperform, neutral, underperform, or avoid while another uses a three-point scale of buy, hold, or sell. Yet another firm may use a similar number of recommendations but use differing labels for their recommendations such as a five-point scale of recommended list, trading buy, market outperformer, market perform, and market underperformer. It may be difficult to understand the meaning of these various recommendations and to compare recommendations from different research analysts. As a result, products have been developed to normalize or standardize the various recommendation scales to allow the recommendations to be compared and, in some cases combined, for review by consumers.
The quality of an analyst's recommendations may also vary significantly. Several services have been developed to determine the past performance of research analysts and to provide rankings of their performance relative to their peers. For example, ranking services exist that provide rankings of analysts based on their ability to predict earnings for companies. Other services provide rankings of analysts by analyzing their research reports to determine whether their recommendations such as buy, hold, and sell have been accurate within a particular stock sector. Most analysts have strengths and weaknesses such as being better suited at picking stocks to sell, at predicting earnings but not predicting larger economic trends, analyzing stock values for certain sized companies, analyzing technology or durable goods, or the like, and these strengths and weaknesses cause the analysts to provide more accurate data in particular investment environments and less accurate data in others. Currently, the “performance measurement” companies are focused on picking the “best” research providers for their needs. They do not give the research buyer a way to explore the possibility of research provider combinations. Currently the “research aggregators” have taken in different research providers' data. The aggregators generally analyze the analyst performance and/or the research provider's performance. Aggregators use analyst's estimates accuracy and the performance of their ratings history accuracy to identify the top performing analysts and research providers.
The research aggregators are focused on the best analyst at estimates or ratings accuracy for a stock, sector or geography or the research provider and their performance. This is an isolated way of looking at research and is not necessarily the best way to research securities, nor does this satisfy the needs of the head of research or the research analyst. The research analyst purchases a “mosaic” of research or inputs to their investment process and it would be valuable to look at the combinations of data in order to identify top performing “research teams”. No aggregator looks at the performance of combinations of research providers or creates virtual or synthetic research teams, using a combination of research providers to form a team based on a series of rules that the analyst sets.
There are nearly two hundred research firms that provide research on stocks within the United States alone, and at any one time, nearly one hundred of these analysts may be following a particular company's stock. As a result, it is very difficult to select among the numerous analysts to determine whose recommendations to follow at any particular time and for any particular stock, sector or market. In an attempt to address this problem, a number of services collect recommendations from a large portion of the analyst firms. Some services combine the recommendations of the analysts such as in a chart that displays the average recommendation of all the recommendations for a particular stock. This is often called the “consensus” recommendation, but it is actually a relatively naïve average that places an equal weight on all analysts regardless of their past performance or industry rankings. Also, the average recommendation of all analysts is often not a unanimous consensus because a buy or positive recommendation often will include a number of sell or negative recommendations (and vice versa for a sell recommendation). Some performance measurement firms, like Starmine, create a more sophisticated average estimate and recommendation by giving contributing analysts with a better track record, more weight than contributing analysts with a worse track record. Even so, these existing tools are focused on allowing the research consumer to find the best research analysts for a particular stock, or to create a stock-by-stock consensus, but they do not help the research consumer find combinations of providers that would outperform the individual providers.
With the above issues in mind, it may be useful to further explain the use of much of the securities research data by those in the financial industry. Asset and money managers such as traditional equity managers (e.g., long-only investors), pension funds, hedge funds, banks, and individual investors are generally considered “buy-side” consumers of research reports produced by research analysts. They purchase investment research in order to make informed investment decisions including buy, sell, and hold decisions on new and existing investments in stocks of companies. Investment research includes qualitative and quantitative data from independent research analysts or from affiliated research analysts (e.g., “sell-side” analysts with relationships with the firm or company they are analyzing). As noted above, investment research firms often have specialties such as a particular geographic coverage, market capitalization, market sector, or the like.